Japanese corporate spending on factories and equipment rose 6.5% year-on-year in the fourth quarter, government data showed Tuesday, signaling resilient investment demand despite the country’s sluggish economic growth.

According to the Ministry of Finance Japan, capital expenditure totaled 15.4 trillion yen ($97.9 billion) in the October–December period — a record high for the quarter. The increase marked a fourth consecutive quarter of growth and accelerated from the previous quarter’s 2.9% annual rise. On a seasonally adjusted basis, spending climbed 3.5% from July–September.

The data will feed into revised gross domestic product (GDP) figures due on March 10. Preliminary estimates last month showed Japan’s economy expanded at an annualized rate of just 0.2% in the final quarter of last year, falling short of expectations as inflation weighed on consumer spending and a tariff deal with the United States provided limited export support.

Kazutaka Maeda, economist at Meiji Yasuda Research Institute, said the figures point to firm overall capital expenditure and suggested GDP growth could be revised upward.

Corporate sales rose 0.7% from a year earlier in the fourth quarter, while recurring profits increased 4.7%, further supporting investment momentum.

Capital expenditure — a key measure of domestic demand-led growth — has remained solid in recent years as companies upgrade aging equipment and adopt automation to address chronic labor shortages tied to Japan’s shrinking population.

The country’s gradual exit from deflation has also encouraged firms to accelerate investment plans, anticipating higher capital costs in the future.

The government is aiming to stimulate further investment through targeted spending in sectors considered vital to economic security. Planned measures include capital injections, subsidies and tax credits.

Mizuho Research & Technologies estimates the policy steps could lift capital expenditure by about 1%, helping offset potential drag from rising interest rates. The think tank forecasts real capital spending growth of 2.7% in fiscal 2026 and 2.5% in fiscal 2027.

However, Maeda cautioned that government incentives alone may not be enough to significantly influence corporate behavior.

“By putting in some money, the government hopes to nudge firms toward becoming investment-oriented, but I’m not entirely convinced,” he said, noting that many companies already have strong profits and can invest if they choose.

He also warned that growing external risks — including tensions in the Middle East and trade-related uncertainties — could weigh on companies’ willingness to expand spending.

Despite broader economic headwinds, the latest data suggests business investment remains a key pillar supporting Japan’s fragile recovery.